22. COMMITMENTS AND CONTINGENCIES

A. PURCHASE OBLIGATIONS

In most cases, our purchase obligation contracts contain provisions for price adjustments, minimum purchase levels and other financial commitments. The commitment amounts presented below are estimates and therefore will likely differ from actual purchase amounts. At December 31, 2011, the following tables reflect contractual cash obligations and other commercial commitments in the respective periods in which they are due:

Progress Energy
(in millions)			2012		2013		2014		2015		2016		Thereafter		Total
Fuel^(a)		$	2,324	$	2,053	$	1,644	$	1,460	$	1,182	$	6,437	$	15,100
Purchased power			459		440		381		391		373		3,104		5,148
Construction obligations^(a)			331		216		35		23		4		10		619
Other purchase obligations			153		100		69		61		71		603		1,057
	Total	$	3,267	$	2,809	$	2,129	$	1,935	$	1,630	$	10,154	$	21,924

PEC
(in millions)			2012		2013		2014		2015		2016		Thereafter		Total
Fuel		$	1,173	$	970	$	760	$	718	$	626	$	1,864	$	6,111
Purchased power			79		70		64		70		68		376		727
Construction obligations			277		114		25		19		-		-		435
Other purchase obligations			77		44		47		30		38		242		478
	Total	$	1,606	$	1,198	$	896	$	837	$	732	$	2,482	$	7,751

PEF
(in millions)			2012		2013		2014		2015		2016		Thereafter		Total
Fuel^(a)		$	1,151	$	1,083	$	884	$	742	$	556	$	4,573	$	8,989
Purchased power			380		370		317		321		305		2,728		4,421
Construction obligations^(a)			54		102		10		4		4		10		184
Other purchase obligations			64		48		22		31		33		361		559
	Total	$	1,649	$	1,603	$	1,233	$	1,098	$	898	$	7,672	$	14,153

^(a)	PEF signed an EPC agreement on December 31, 2008, with Westinghouse Electric Company LLC and Stone & Webster, Inc. for two approximately 1,100-MW Westinghouse AP1000 nuclear units planned for construction at Levy. Due to uncertainty regarding the ultimate magnitude and timing of obligations under the EPC agreement and the Levy nuclear fabrication contract, the table includes only the obligations related to the selected components of long lead time equipment as discussed under “Fuel and Purchased Power” and "Construction Obligations.”

FUEL AND PURCHASED POWER

Through our subsidiaries, we have entered into various long-term contracts for coal, oil, gas and nuclear fuel as well as transportation agreements for the related fuel. Our purchases under these commitments were $2.697 billion, $2.890 billion and $2.921 billion for 2011, 2010 and 2009, respectively. PEC's purchases were $1.398 billion, $1.489 billion and $1.527 billion in 2011, 2010 and 2009, respectively. PEF's purchases were $1.299 billion, $1.401 billion and $1.394 billion in 2011, 2010 and 2009, respectively. Essentially all fuel and certain purchased power costs incurred by PEC and PEF are eligible for recovery through their respective cost-recovery clauses.

In December 2008, PEF entered into a nuclear fuel fabrication contract that contained exit provisions with termination fees for the planned Levy nuclear units. Due to revisions in the construction schedule and startup dates the nuclear fuel fabrication contract was terminated during 2011. (See discussion following under “Construction Obligations.”)

Both PEC and PEF have ongoing purchased power contracts, including renewable energy contracts, with other utilities, certain co-generators and qualified facilities (QFs), with expiration dates ranging from 2012 to 2032. These purchased power contracts generally provide for capacity and energy payments or bundled capacity and energy payments. In addition, both PEC and PEF have various contracts to secure transmission rights. Our purchases under purchased power contracts, including transmission costs, were $925 million, $907 million and $756 million for 2011, 2010 and 2009, respectively. PEC's purchases, including transmission costs, were $253 million, $239 million and $171 million in 2011, 2010 and 2009, respectively. PEF's purchases, including transmission costs, were $672 million, $668 million and $585 million in 2011, 2010 and 2009, respectively.

PEC has executed certain firm contracts for approximately 985 MW of purchased power with other utilities, including tolling contracts, with expiration dates ranging from 2019 to 2022 and representing between 33 percent and 100 percent of plant net output. Minimum purchases under these contracts included in the previous table, representing capital-related capacity costs, are approximately $51 million, $52 million, $53 million, $60 million and $60 million for 2012 through 2016, respectively, and $271 million payable thereafter.

PEC has various pay-for-performance contracts with QFs, including renewable energy, for approximately 81 MW of firm capacity expiring at various times through 2032. In most cases, these contracts account for 100 percent of the net generating capacity of each of the facilities. Payments for both capacity and energy are contingent upon the QFs' ability to generate and, therefore, are not included in the previous table.

PEC has entered into conditional agreements for firm pipeline transportation capacity to support PEC's gas supply needs. Certain agreements are for the period from July 2012 through May 2033. The estimated total cost to PEC associated with these agreements is approximately $1.510 billion, approximately $380 million of which will be classified as a capital lease. Due to the conditions of the capital lease agreement, the capital lease will not be recorded on PEC's balance sheet until mid-2012. The transactions are subject to several conditions precedent, including various state regulatory approvals, the completion and commencement of operation of necessary related interstate and intrastate natural gas pipeline system expansions and other contractual provisions. Due to the conditions of these agreements, the estimated costs associated with these agreements are not currently included in PEC's fuel commitments or in PEC's capital lease assets or obligations.

PEF has executed certain firm contracts for approximately 499 MW of purchased power with other utilities with expiration dates ranging from 2012 to 2016 and representing between 12 percent and 25 percent of plant net output. Minimum purchases under these contracts, representing capital-related capacity costs, are approximately $53 million, $46 million, $65 million, $65 million and $27 million for 2012 through 2016, respectively.

PEF has ongoing purchased power contracts with certain QFs for 682 MW of firm capacity with expiration dates ranging from 2012 to 2025. Energy payments are based on the actual power taken under these contracts. Capacity payments are subject to the QFs meeting certain contract performance obligations. In most cases, these contracts account for 100 percent of the net generating capacity of each of the facilities. All ongoing commitments have been approved by the FPSC. Minimum expected future capacity payments under these contracts are $313 million, $309 million, $238 million, $244 million and $273 million for 2012 through 2016, respectively, and $2.728 billion payable thereafter. The FPSC allows the capacity payments to be recovered through a capacity cost-recovery clause, which is similar to, and works in conjunction with, energy payments recovered through the fuel cost-recovery clause.

CONSTRUCTION OBLIGATIONS

We have purchase obligations related to various capital construction projects. Our total payments under these contracts were $507 million, $703 million and $818 million for 2011, 2010 and 2009, respectively.

PEC has purchase obligations related to various capital projects including new generation and transmission obligations. Total payments under PEC's construction-related contracts were $460 million, $555 million and $199 million for 2011, 2010 and 2009, respectively. Payments for 2011 primarily relate to construction of generating facilities at our sites in Wayne County, N.C., and New Hanover County, N.C., as discussed in Note 8B.

PEF has purchase obligations related to capital projects including Levy and various new generation, transmission and environmental compliance projects. Total payments under PEF's construction-related contracts were $47 million, $147 million and $619 million for 2011, 2010 and 2009, respectively, including $6 million, $63 million and $243 million for 2011, 2010 and 2009, respectively, toward long lead equipment and engineering related to the Levy EPC.

The future construction obligations presented in the previous tables for Progress Energy and PEF exclude PEF's Levy EPC agreement. The EPC agreement includes provisions for termination. For termination without cause, the EPC agreement contains exit provisions with termination fees, which may be significant, that vary based on the termination circumstances. As discussed in Note 8C, in 2010 PEF identified a schedule shift in the Levy project, and major construction activities on Levy have been postponed until after the NRC issues the COL for the plants, which is expected in 2013 if the current licensing schedule remains on track. We executed an amendment to the EPC agreement in 2010 due to the schedule shifts. Additionally, in light of the schedule shifts in the Levy nuclear project, PEF completed vendor negotiations in July 2011 to continue or suspend purchase orders for long lead time equipment without material fees or charges. Prior to the EPC amendment, estimated payments and associated escalations were $8.608 billion for the multi-year contract and did not assume any joint ownership. Because we have executed an amendment to the EPC agreement and anticipate negotiating additional amendments upon receipt of the COL, we cannot currently predict when those obligations will be satisfied or the magnitude of any change. PEF has continued with selected components of long lead time equipment. Work was suspended on the remaining long lead time equipment items, which have total remaining estimated payments and associated escalations of approximately $1.250 billion included in the previously discussed $8.608 billion. We cannot predict the outcome of this matter.

OTHER PURCHASE OBLIGATIONS

We have various other contractual obligations primarily related to PESC service contracts for operational services, PEC service agreements related to its Smith Energy Complex, Wayne County, N.C., and New Hanover County, N.C., generating facilities, and PEF service agreements related to the Hines Energy Complex and the Bartow Plant. Our payments under these agreements were $151 million, $124 million and $56 million for 2011, 2010 and 2009, respectively.

PEC has various other purchase obligations, including obligations for long-term service agreements, parts and equipment, limestone supply and fleet vehicles. Total purchases under these contracts were $73 million, $55 million and $14 million for 2011, 2010 and 2009, respectively.

PEF has various other purchase obligations, including long-term service agreements for the Hines Energy Complex and the Bartow Plant. Total payments under these contracts were $54 million, $35 million and $22 million for 2011, 2010 and 2009, respectively. Future obligations are primarily comprised of the long-term service agreements.

B. LEASES

We and the Utilities lease office buildings, computer equipment, vehicles, railcars and other property and equipment with various terms and expiration dates. Additionally, the Utilities have entered into certain purchased power agreements, which are classified as leases. Some rental payments for transportation equipment include minimum rentals plus contingent rentals based on mileage. These contingent rentals are not significant.

Our rent expense under operating leases other than for purchased power totaled $42 million, $39 million and $37 million for 2011, 2010 and 2009, respectively. Our purchased power expense under agreements classified as operating leases was approximately $62 million, $61 million and $11 million in 2011, 2010 and 2009, respectively.

In 2003, we entered into an operating lease for a building for which minimum annual rental payments are approximately $7 million. The lease term expires July 2035 and provides for no rental payments during the last 15 years of the lease, during which period $53 million of rental expense will be recorded on the Consolidated Statements of Income. See Note 2 regarding our exit plan to vacate and sublease this building.

PEC's rent expense under operating leases other than for purchased power totaled $26 million, $25 million and $26 million during 2011, 2010 and 2009, respectively. These amounts include rent expense allocated from PESC to PEC of $5 million in 2011, 2010 and 2009.

PEC has entered into purchased power agreements that are classified as operating leases. These agreements, which have total minimum payments of approximately $512 million and expire through 2032, primarily relate to two tolling agreements for purchased power of approximately 576 MW (100 percent of net output). Purchased power expense under agreements classified as operating leases was approximately $62 million, $38 million and $11 million in 2011, 2010 and 2009, respectively.

PEF's rent expense under operating leases other than for purchased power totaled $15 million, $14 million and $11 million during 2011, 2010 and 2009, respectively. These amounts include rent expense allocated from PESC to PEF of $4 million in 2011 and $3 million in 2010 and 2009.

PEF has entered into a purchased power tolling agreement that is classified as an operating lease. This agreement for approximately 640 MW (100 percent of net output) has minimum annual payments beginning in June 2012 and expires in 2027 with total minimum payments of approximately $421 million. Purchased power expense under agreements classified as operating leases was approximately $23 million in 2010. PEF had no purchased power expense under operating lease agreements in 2011 and 2009.

PEF has a capital lease for a building and one tolling agreement for purchased power, which is classified as a capital lease of the related plant. PEF entered into the agreement for the building in 2005 and the lease term expires in 2047. The agreement for the building provides for minimum annual payments from 2007 through 2026 and no payments from 2027 through 2047. The minimum annual payments are approximately $5 million, for a total of approximately $103 million. During the last 20 years of the building lease, approximately $51 million of rental expense will be recorded on the Statements of Income. The 517-MW (100 percent of net output) tolling agreement for purchased power has minimum annual payments of approximately $21 million from 2007 through 2024, for a total of approximately $348 million.

Assets recorded under capital leases, including plant related to purchased power agreements, at December 31, consisted of:


			Progress Energy				PEC				PEF
(in millions)			2011		2010		2011		2010		2011		2010
Buildings		$	267	$	267	$	30	$	30	$	237	$	237
Less: Accumulated amortization			(56)		(46)		(18)		(17)		(38)		(29)
	Total	$	211	$	221	$	12	$	13	$	199	$	208

Consistent with the ratemaking treatment for capital leases, capital lease expenses are charged to the same accounts that would be used if the leases were operating leases. Thus, our and the Utilities' capital lease expense is generally included in O&M or purchased power expense. Our capital lease expense totaled $25 million, $25 million and $26 million for 2011, 2010 and 2009, respectively, which was primarily comprised of PEF's capital lease expense of $23 million, $23 million and $24 million for 2011, 2010 and 2009, respectively.

At December 31, 2011, minimum annual payments, excluding executory costs such as property taxes, insurance and maintenance, under long-term noncancelable operating and capital leases were:


			Progress Energy				PEC				PEF
(in millions)			Capital	Operating			Capital	Operating			Capital	Operating
2012		$	28	$	61	$	2	$	28	$	26	$	27
2013			36		85		10		43		26		36
2014			26		82		-		42		26		35
2015			26		79		-		43		26		34
2016			25		79		-		43		25		34
Thereafter			201		791		6		472		195		318
Minimum annual payments			342		1,177		18		671		324		484
Less amount representing imputed interest			(131)				(6)				(125)
	Total	$	211	$	1,177	$	12	$	671	$	199	$	484

The Utilities are lessors of electric poles, streetlights and other facilities. PEC's rents received are primarily contingent upon usage and totaled $35 million, $33 million, and $34 million for 2011, 2010 and 2009, respectively. PEC's minimum rentals receivable under noncancelable leases are $12 million for 2012 and none thereafter. PEF's rents received are based on a fixed minimum rental where price varies by type of equipment or contingent usage and totaled $86 million, $85 million and $84 million for 2011, 2010 and 2009, respectively. PEF's minimum rentals receivable under noncancelable leases are not material for 2012 and thereafter.

C. GUARANTEES

As a part of normal business, we enter into various agreements providing future financial or performance assurances to third parties. Such agreements include guarantees, standby letters of credit and surety bonds. At December 31, 2011, we do not believe conditions are likely for significant performance under these guarantees. To the extent liabilities are incurred as a result of the activities covered by the guarantees, such liabilities are included on the accompanying Balance Sheets.

At December 31, 2011, we have issued guarantees and indemnifications of and for certain asset performance, legal, tax and environmental matters to third parties, including indemnifications made in connection with sales of businesses. At December 31, 2011, our estimated maximum exposure for guarantees and indemnifications for which a maximum exposure is determinable was $337 million, including $61 million at PEF. Related to the sales of businesses, the latest specified notice period extends until 2013 for the majority of legal, tax and environmental matters provided for in the indemnification provisions. Indemnifications for the performance of assets extend to 2016. For certain matters for which we receive timely notice, our indemnity obligations may extend beyond the notice period. Certain indemnifications related to discontinued operations have no limitations as to time or maximum potential future payments. As part of settlement agreements entered into in 2002, PEF is responsible for providing the joint owners of CR3 a specified amount of generating capacity through the expiration of the indemnification provisions of the joint owner agreement in 2013. Due to the CR3 outage (See Note 8C), PEF has been unable to meet the required generating capacity and has provided replacement power from other generation sources or purchased power. During the year ended December 31, 2011, we and PEF recorded indemnification charges totaling $48 million for estimated joint owner replacement power costs for 2011 and future years, and provided replacement power totaling $21 million. At December 31, 2011 and 2010, we had recorded liabilities related to guarantees and indemnifications to third parties of $63 million and $31 million, respectively. These amounts included $37 million and $6 million for PEF at December 31, 2011 and 2010, respectively. As current estimates change, additional losses related to guarantees and indemnifications to third parties, which could be material, may be recorded in the future.

In addition, the Parent has issued $300 million in guarantees for certain payments of two wholly owned indirect subsidiaries (See Note 23).

D. OTHER COMMITMENTS AND CONTINGENCIES

MERGER

During January and February 2011, Progress Energy and its directors were named as defendants in 11 purported class action lawsuits with 10 lawsuits brought in the Superior Court, Wake County, N.C., and one lawsuit filed in the United States District Court for the Eastern District of North Carolina, each in connection with the Merger (we refer to these lawsuits as the “actions”). The complaints in the actions alleged, among other things, that the Merger Agreement was the product of breaches of fiduciary duty by the individual defendants, in that it allegedly did not provide for full and fair value for Progress Energy's shareholders; that the Merger Agreement contained coercive deal protection measures; and that the Merger Agreement and the Merger were approved as a result, allegedly, of improper self-dealing by certain defendants who would receive certain alleged employment compensation benefits and continued employment pursuant to the Merger Agreement. The complaints in the actions also alleged that Progress Energy aided and abetted the individual defendants' alleged breaches of fiduciary duty. As relief, the plaintiffs in the actions sought, among other things, to enjoin completion of the Merger.

Additionally, the complaint in the federal action was amended in early April 2011 to include allegations that the defendants violated federal securities laws in connection with statements contained in the registration statement filed on Form S-4 by Duke Energy related to the Merger (the Registration Statement).

On March 31, 2011, counsel for the federal action plaintiff sent a derivative demand letter to Mr. William D. Johnson, Chairman, President and CEO of Progress Energy, demanding that the Progress Energy board of directors desist from moving forward with the Merger, make certain disclosures and engage in an auction of the company. Also on March 31, 2011, the same counsel sent Mr. Johnson a substantially identical derivative demand letter on behalf of two other purported Progress Energy shareholders.

On April 13, 2011, counsel for the federal action plaintiff sent another derivative demand letter to Mr. Johnson further demanding that the Progress Energy board of directors desist from moving forward with the Merger unless certain changes are made to the Merger Agreement and additional disclosures are made. Also on April 13, 2011, the same counsel sent Mr. Johnson a substantially identical derivative demand letter on behalf of two other purported Progress Energy shareholders.

On April 25, 2011, the Progress Energy board of directors established a special committee of disinterested directors to conduct a review and evaluation of the allegations and legal claims set forth in the derivative demand letters. The special committee investigated the allegations and legal claims and determined there was no basis to pursue the claims.

By order dated June 17, 2011, the court consolidated the state court cases. On June 21, 2011, the plaintiffs in the state court actions filed a verified consolidated amended complaint in the consolidated state court actions alleging breach of fiduciary duty by the individual defendants, and that Progress Energy aided and abetted the individual defendants' alleged breaches of fiduciary duty. The verified consolidated amended complaint further alleged that the Registration Statement and amendments filed on April 8, April 25, and May 13, 2011, failed to disclose material facts, giving rise to plaintiffs' claims.

On July 11, 2011, solely to avoid the costs, risks and uncertainties inherent in litigation and to allow its shareholders to vote on the proposals required in connection with the Merger at its special meeting of its shareholders, Progress Energy entered into a memorandum of understanding with plaintiffs in the consolidated state court actions and other named defendants to settle the consolidated action and all related claims that were or could have been asserted in other actions, subject to court approval. The details of the settlement were set forth in a notice sent to Progress Energy's shareholders of record that were members of the class as of July 5, 2011.

On November 29, 2011, the court entered a final order and judgment approving the settlement as fair, reasonable and adequate and awarded legal fees and expenses to plaintiffs' counsel of $550,000. The court dismissed the action with prejudice and released and fully discharged all claims, including federal claims, which had been or could be in the future asserted in the action or in any court, tribunal or proceeding. On December 8, 2011, the federal action was voluntarily dismissed.

ENVIRONMENTAL

We are subject to federal, state and local regulations regarding environmental matters (See Note 21).

Hurricane Katrina

In May 2011, PEC and PEF were named in a class action lawsuit filed in the U.S. District Court for the Southern District of Mississippi. Plaintiffs claim that PEC and PEF, along with numerous other utility, oil, coal and chemical companies, are liable for damages relating to losses suffered by victims of Hurricane Katrina. Plaintiffs claim that defendants' greenhouse gas emissions contributed to the frequency and intensity of storms such as Hurricane Katrina. We believe the plaintiffs' claim is without merit; however, we cannot predict the outcome of this matter.

Water Discharge Permit

On October 5, 2011, Earthjustice, on behalf of the Sierra Club and Florida Wildlife Federation, filed a petition seeking review of the water discharge permit issued to CR1, CR2 and CR3 raising a number of technical and legal issues with respect to the permit. A settlement has been tentatively reached providing for the withdrawal of the petition and issuance of a revised water discharge permit identical in form to the one under appeal but with an 18 month term. The current permit has a five year term. The settlement, if finalized, will fully resolve the current dispute. We cannot predict the outcome of this matter.

SPENT NUCLEAR FUEL MATTERS

Pursuant to the Nuclear Waste Policy Act of 1982, the Utilities entered into contracts with the DOE under which the DOE agreed to begin taking spent nuclear fuel by no later than January 31, 1998. All similarly situated utilities were required to sign the same standard contract.

The DOE failed to begin taking spent nuclear fuel by January 31, 1998. In January 2004, the Utilities filed a complaint in the U.S. Court of Federal Claims against the DOE, claiming that the DOE breached the Standard Contract for Disposal of Spent Nuclear Fuel by failing to accept spent nuclear fuel from our various facilities on or before January 31, 1998. The Utilities have asserted over $90 million in damages incurred between January 31, 1998, and December 31, 2005, the time period set by the court for damages in this case.

On June 14, 2011, the judge in the U.S. Court of Federal Claims issued a ruling to award the Utilities substantially all their asserted damages. In September 2011, after the government dismissed its notice of appeal, the judgment became final. As a result, in September 2011, PEC recorded the $92 million award as an offset for past spent fuel storage costs incurred, of which $27 million was O&M expense. PEC received the cash award in January 2012.

On December 12, 2011, the Utilities filed another complaint in the U.S. Court of Federal Claims against the DOE, claiming damages incurred from January 1, 2006, through December 31, 2010. The damages stem from the same breach of contract asserted in the previous litigation. The Utilities may file subsequent damage claims as they incur additional costs. We cannot predict the outcome of this matter.

SYNTHETIC FUELS MATTERS

On October 21, 2009, a jury delivered a verdict in a lawsuit against Progress Energy and a number of our subsidiaries and affiliates arising out of an Asset Purchase Agreement dated as of October 19, 1999, and amended as of August 23, 2000 (the Asset Purchase Agreement), by and among U.S. Global, LLC (Global); Earthco; certain affiliates of Earthco; EFC Synfuel LLC (which was owned indirectly by Progress Energy, Inc.) and certain of its affiliates, including Solid Energy LLC; Solid Fuel LLC; Ceredo Synfuel LLC; Gulf Coast Synfuel LLC (renamed Sandy River Synfuel LLC) (collectively, the Progress Affiliates), as amended by an amendment to the Asset Purchase Agreement. In a case filed in the Circuit Court for Broward County, Fla., in March 2003 (the Florida Global Case), Global requested an unspecified amount of compensatory damages, as well as declaratory relief. Global asserted (1) that pursuant to the Asset Purchase Agreement, it was entitled to an interest in two synthetic fuels facilities previously owned by the Progress Affiliates and an option to purchase additional interests in the two synthetic fuels facilities and (2) that it was entitled to damages because the Progress Affiliates prohibited it from procuring purchasers for the synthetic fuels facilities. As a result of the expiration of the Section 29 tax credit program on December 31, 2007, all of our synthetic fuels businesses were abandoned and we reclassified our synthetic fuels businesses as discontinued operations.

The jury awarded Global $78 million. On October 23, 2009, Global filed a motion to assess prejudgment interest on the award. On November 20, 2009, the court granted the motion and assessed $55 million in prejudgment interest and entered judgment in favor of Global in a total amount of $133 million. During the year ended December 31, 2009, we recorded an after-tax charge of $74 million to discontinued operations. On December 18, 2009, we appealed the Broward County judgment to the Florida Fourth District Court of Appeals. Also in December 2009, we made a $154 million payment, which represents payment of the total judgment and a required premium equivalent to two years of interest, to the Broward County Clerk of Court bond account. The appellate briefing process has been completed. Oral argument was held on September 27, 2011. We cannot predict the outcome of this matter.

In a second suit filed in the Superior Court for Wake County, N.C., Progress Synfuel Holdings, Inc. et al. v. U.S. Global, LLC (the North Carolina Global Case), the Progress Affiliates seek declaratory relief consistent with our interpretation of the Asset Purchase Agreement. Global was served with the North Carolina Global Case on April 17, 2003.

On May 15, 2003, Global moved to dismiss the North Carolina Global Case for lack of personal jurisdiction over Global. In the alternative, Global requested that the court decline to exercise its discretion to hear the Progress Affiliates' declaratory judgment action. On August 7, 2003, the Wake County Superior Court denied Global's motion to dismiss, but stayed the North Carolina Global Case, pending the outcome of the Florida Global Case. The Progress Affiliates appealed the superior court's order staying the case. By order dated September 7, 2004, the North Carolina Court of Appeals dismissed the Progress Affiliates' appeal. Based upon the verdict in the Florida Global Case, we anticipate dismissal of the North Carolina Global Case.

CLAIM OF HOLDER OF CONTINGENT VALUE OBLIGATIONS

On June 10, 2011, Davidson Kempner Partners, M.H. Davidson & Co., Davidson Kempner Institutional Partners, L.P., and Davidson Kempner International, Ltd. (jointly, Davidson Kempner) filed a lawsuit against us in the Supreme Court of the State of New York, County of New York. Davidson Kempner is a holder of CVOs (See Note 16) and alleged that we improperly deducted escrow deposits in 2005 in determining net after-tax cash flow under the agreement governing the CVOs and that by taking this position, we breached our obligation under the agreement to exercise good faith and fair dealing. The plaintiffs alleged that this breach caused injury to the holders of CVOs in the approximate amount of $42 million. The plaintiffs requested declaratory judgment to require that we deduct the escrowed payments in 2006.

On August 2, 2011, the parties filed a Stipulation of Discontinuance without Prejudice to dismiss the state lawsuit so that certain of the plaintiffs could file a federal lawsuit against us. On August 9, 2011, M.H. Davidson & Co. and Davidson Kempner International, Ltd. filed a lawsuit against us in the United States District Court for the Southern District of New York with the same allegations and seeking the same relief as the prior state lawsuit. On October 3, 2011, we entered a settlement agreement and release with Davidson Kempner under which the parties mutually released all claims related to the CVOs and we purchased all of Davidson Kempner's CVOs at a negotiated purchase price of $0.75 per CVO. The parties to the federal lawsuit filed a Stipulation of Discontinuance with Prejudice dismissing the lawsuit on October 12, 2011.

OTHER LITIGATION MATTERS

We and our subsidiaries are involved in various litigation matters in the ordinary course of business, some of which involve substantial amounts. Where appropriate, we have made accruals and disclosures to provide for such matters. In the opinion of management, the final disposition of pending litigation would not have a material adverse effect on our consolidated results of operations or financial position.

Commitments And Contingencies Disclosure [Line Items]

Commitments and Contingencies

22. COMMITMENTS AND CONTINGENCIES

A. PURCHASE OBLIGATIONS

In most cases, our purchase obligation contracts contain provisions for price adjustments, minimum purchase levels and other financial commitments. The commitment amounts presented below are estimates and therefore will likely differ from actual purchase amounts. At December 31, 2011, the following tables reflect contractual cash obligations and other commercial commitments in the respective periods in which they are due:

PEF
(in millions)			2012		2013		2014		2015		2016		Thereafter		Total
Fuel^(a)		$	1,151	$	1,083	$	884	$	742	$	556	$	4,573	$	8,989
Purchased power			380		370		317		321		305		2,728		4,421
Construction obligations^(a)			54		102		10		4		4		10		184
Other purchase obligations			64		48		22		31		33		361		559
	Total	$	1,649	$	1,603	$	1,233	$	1,098	$	898	$	7,672	$	14,153

^(a)	PEF signed an EPC agreement on December 31, 2008, with Westinghouse Electric Company LLC and Stone & Webster, Inc. for two approximately 1,100-MW Westinghouse AP1000 nuclear units planned for construction at Levy. Due to uncertainty regarding the ultimate magnitude and timing of obligations under the EPC agreement and the Levy nuclear fabrication contract, the table includes only the obligations related to the selected components of long lead time equipment as discussed under “Fuel and Purchased Power” and "Construction Obligations.”

FUEL AND PURCHASED POWER

Through our subsidiaries, we have entered into various long-term contracts for coal, oil, gas and nuclear fuel as well as transportation agreements for the related fuel. Our purchases under these commitments were $2.697 billion, $2.890 billion and $2.921 billion for 2011, 2010 and 2009, respectively. PEC's purchases were $1.398 billion, $1.489 billion and $1.527 billion in 2011, 2010 and 2009, respectively. PEF's purchases were $1.299 billion, $1.401 billion and $1.394 billion in 2011, 2010 and 2009, respectively. Essentially all fuel and certain purchased power costs incurred by PEC and PEF are eligible for recovery through their respective cost-recovery clauses.

In December 2008, PEF entered into a nuclear fuel fabrication contract that contained exit provisions with termination fees for the planned Levy nuclear units. Due to revisions in the construction schedule and startup dates the nuclear fuel fabrication contract was terminated during 2011. (See discussion following under “Construction Obligations.”)

Both PEC and PEF have ongoing purchased power contracts, including renewable energy contracts, with other utilities, certain co-generators and qualified facilities (QFs), with expiration dates ranging from 2012 to 2032. These purchased power contracts generally provide for capacity and energy payments or bundled capacity and energy payments. In addition, both PEC and PEF have various contracts to secure transmission rights. Our purchases under purchased power contracts, including transmission costs, were $925 million, $907 million and $756 million for 2011, 2010 and 2009, respectively. PEC's purchases, including transmission costs, were $253 million, $239 million and $171 million in 2011, 2010 and 2009, respectively. PEF's purchases, including transmission costs, were $672 million, $668 million and $585 million in 2011, 2010 and 2009, respectively.

PEF has executed certain firm contracts for approximately 499 MW of purchased power with other utilities with expiration dates ranging from 2012 to 2016 and representing between 12 percent and 25 percent of plant net output. Minimum purchases under these contracts, representing capital-related capacity costs, are approximately $53 million, $46 million, $65 million, $65 million and $27 million for 2012 through 2016, respectively.

PEF has ongoing purchased power contracts with certain QFs for 682 MW of firm capacity with expiration dates ranging from 2012 to 2025. Energy payments are based on the actual power taken under these contracts. Capacity payments are subject to the QFs meeting certain contract performance obligations. In most cases, these contracts account for 100 percent of the net generating capacity of each of the facilities. All ongoing commitments have been approved by the FPSC. Minimum expected future capacity payments under these contracts are $313 million, $309 million, $238 million, $244 million and $273 million for 2012 through 2016, respectively, and $2.728 billion payable thereafter. The FPSC allows the capacity payments to be recovered through a capacity cost-recovery clause, which is similar to, and works in conjunction with, energy payments recovered through the fuel cost-recovery clause.

CONSTRUCTION OBLIGATIONS

We have purchase obligations related to various capital construction projects. Our total payments under these contracts were $507 million, $703 million and $818 million for 2011, 2010 and 2009, respectively.

PEC has purchase obligations related to various capital projects including new generation and transmission obligations. Total payments under PEC's construction-related contracts were $460 million, $555 million and $199 million for 2011, 2010 and 2009, respectively. Payments for 2011 primarily relate to construction of generating facilities at our sites in Wayne County, N.C., and New Hanover County, N.C., as discussed in Note 8B.

PEF has purchase obligations related to capital projects including Levy and various new generation, transmission and environmental compliance projects. Total payments under PEF's construction-related contracts were $47 million, $147 million and $619 million for 2011, 2010 and 2009, respectively, including $6 million, $63 million and $243 million for 2011, 2010 and 2009, respectively, toward long lead equipment and engineering related to the Levy EPC.

The future construction obligations presented in the previous tables for Progress Energy and PEF exclude PEF's Levy EPC agreement. The EPC agreement includes provisions for termination. For termination without cause, the EPC agreement contains exit provisions with termination fees, which may be significant, that vary based on the termination circumstances. As discussed in Note 8C, in 2010 PEF identified a schedule shift in the Levy project, and major construction activities on Levy have been postponed until after the NRC issues the COL for the plants, which is expected in 2013 if the current licensing schedule remains on track. We executed an amendment to the EPC agreement in 2010 due to the schedule shifts. Additionally, in light of the schedule shifts in the Levy nuclear project, PEF completed vendor negotiations in July 2011 to continue or suspend purchase orders for long lead time equipment without material fees or charges. Prior to the EPC amendment, estimated payments and associated escalations were $8.608 billion for the multi-year contract and did not assume any joint ownership. Because we have executed an amendment to the EPC agreement and anticipate negotiating additional amendments upon receipt of the COL, we cannot currently predict when those obligations will be satisfied or the magnitude of any change. PEF has continued with selected components of long lead time equipment. Work was suspended on the remaining long lead time equipment items, which have total remaining estimated payments and associated escalations of approximately $1.250 billion included in the previously discussed $8.608 billion. We cannot predict the outcome of this matter.

OTHER PURCHASE OBLIGATIONS

We have various other contractual obligations primarily related to PESC service contracts for operational services, PEC service agreements related to its Smith Energy Complex, Wayne County, N.C., and New Hanover County, N.C., generating facilities, and PEF service agreements related to the Hines Energy Complex and the Bartow Plant. Our payments under these agreements were $151 million, $124 million and $56 million for 2011, 2010 and 2009, respectively.

PEC has various other purchase obligations, including obligations for long-term service agreements, parts and equipment, limestone supply and fleet vehicles. Total purchases under these contracts were $73 million, $55 million and $14 million for 2011, 2010 and 2009, respectively.

PEF has various other purchase obligations, including long-term service agreements for the Hines Energy Complex and the Bartow Plant. Total payments under these contracts were $54 million, $35 million and $22 million for 2011, 2010 and 2009, respectively. Future obligations are primarily comprised of the long-term service agreements.

B. LEASES

We and the Utilities lease office buildings, computer equipment, vehicles, railcars and other property and equipment with various terms and expiration dates. Additionally, the Utilities have entered into certain purchased power agreements, which are classified as leases. Some rental payments for transportation equipment include minimum rentals plus contingent rentals based on mileage. These contingent rentals are not significant.

PEF's rent expense under operating leases other than for purchased power totaled $15 million, $14 million and $11 million during 2011, 2010 and 2009, respectively. These amounts include rent expense allocated from PESC to PEF of $4 million in 2011 and $3 million in 2010 and 2009.

PEF has entered into a purchased power tolling agreement that is classified as an operating lease. This agreement for approximately 640 MW (100 percent of net output) has minimum annual payments beginning in June 2012 and expires in 2027 with total minimum payments of approximately $421 million. Purchased power expense under agreements classified as operating leases was approximately $23 million in 2010. PEF had no purchased power expense under operating lease agreements in 2011 and 2009.

PEF has a capital lease for a building and one tolling agreement for purchased power, which is classified as a capital lease of the related plant. PEF entered into the agreement for the building in 2005 and the lease term expires in 2047. The agreement for the building provides for minimum annual payments from 2007 through 2026 and no payments from 2027 through 2047. The minimum annual payments are approximately $5 million, for a total of approximately $103 million. During the last 20 years of the building lease, approximately $51 million of rental expense will be recorded on the Statements of Income. The 517-MW (100 percent of net output) tolling agreement for purchased power has minimum annual payments of approximately $21 million from 2007 through 2024, for a total of approximately $348 million.

Assets recorded under capital leases, including plant related to purchased power agreements, at December 31, consisted of:


			Progress Energy				PEC				PEF
(in millions)			2011		2010		2011		2010		2011		2010
Buildings		$	267	$	267	$	30	$	30	$	237	$	237
Less: Accumulated amortization			(56)		(46)		(18)		(17)		(38)		(29)
	Total	$	211	$	221	$	12	$	13	$	199	$	208

Consistent with the ratemaking treatment for capital leases, capital lease expenses are charged to the same accounts that would be used if the leases were operating leases. Thus, our and the Utilities' capital lease expense is generally included in O&M or purchased power expense. Our capital lease expense totaled $25 million, $25 million and $26 million for 2011, 2010 and 2009, respectively, which was primarily comprised of PEF's capital lease expense of $23 million, $23 million and $24 million for 2011, 2010 and 2009, respectively.

At December 31, 2011, minimum annual payments, excluding executory costs such as property taxes, insurance and maintenance, under long-term noncancelable operating and capital leases were:


			Progress Energy				PEC				PEF
(in millions)			Capital	Operating			Capital	Operating			Capital	Operating
2012		$	28	$	61	$	2	$	28	$	26	$	27
2013			36		85		10		43		26		36
2014			26		82		-		42		26		35
2015			26		79		-		43		26		34
2016			25		79		-		43		25		34
Thereafter			201		791		6		472		195		318
Minimum annual payments			342		1,177		18		671		324		484
Less amount representing imputed interest			(131)				(6)				(125)
	Total	$	211	$	1,177	$	12	$	671	$	199	$	484